The Federal Court of Australia has ruled in the business interruption case between AAI Limited – trading as Vero Insurance under the Suncorp umbrella – and Victoria-based café and restaurant Vanilla Lounge, and the result is quite of a mixed bag.
Restaurant owner Rockment Pty Ltd, which initiated proceedings after its insurance claim was denied, asked the court to determine the answer to the following question: “Is it sufficient to exclude coverage under the exclusion in clause 8 in section 5 of Insurance Policy SPX015934895 if the claim is for loss or damage that is directly or indirectly caused by or arises from, or is in consequence of, or contributed by a human disease specified in a declaration of a human biosecurity emergency under the Biosecurity Act 2015?”
The court’s ruling? ‘No’, but there’s more to it.
In the 21-page judgement seen by Insurance Business, the court stated: “It follows that the question should be answered in the negative. It is not sufficient to exclude cover under the exclusion if the claim is somehow causally connected to a human disease specified in a declaration of a human biosecurity emergency.
“The clause operates to exclude a claim which is ‘directly or indirectly caused by or arises from, or is in consequence of or contributed to by’ the human biosecurity emergency declared under the Biosecurity Act. That question of causation is a matter of fact to be answered in the circumstances of each particular case.”
The court went on to say: “It should be emphasised that the negative answer to the question is in direct response to the question posed and the circumstances in which the court is asked to answer it.
“While it is the answer for which Rockment contended, the court has not accepted its construction. Conversely, while Vero contended that the question be answered ‘yes’, the construction accepted by the court is closer to its alternative construction than any proffered by Rockment.”
Vero’s parent group Suncorp sees the decision as a “favourable” one, and commented that it believes the insurance group’s overall reserving continues to be adequate. Valuations, however, do not take account of any unexpected outcomes from future litigation as well as the potential for further coronavirus-related lockdowns.
“The court’s interpretation is consistent with Suncorp’s position that cover for loss arising from a pandemic is a high risk for an insurer which would normally be excluded,” noted Suncorp in an update this morning.
“While the court rejected one interpretation of the exclusion clause put, and therefore answered the discrete question put to it as ‘no’, the court also rejected the insured’s narrow interpretation, and accepted Suncorp’s argument that the exclusion applied broadly for losses connected with COVID-19.”
Meanwhile the court will still have to determine the exclusion’s application to the individual circumstances of the policyholder.